BHARAT Bond ETF is a Government of India initiative and Edelweiss Asset Management Company has been appointed to manage this ETF. This initiative by the government aims to strengthen the bond market in India and deepen retail participation which is currently very low due to restricted access, low liquidity and limited awareness. The BHARAT Bond ETF will invest in bonds issued by bonds of CPSEs/CPSUs/CPFIs and other Government organizations.
The offer period is from December 12th 2019 till December 20th 2019.
Here is why it make sense for you to recommend BHARAT Bond ETF to your clients:
Predictable returns: Similar to Fixed Maturity Plans, BHARAT Bond ETF will endeavour to buy and hold the underlying bonds till there maturity. The yield as on ____5th Dec 2019________of the underlying Index is 7.6%* for 10+ year tenure and 6.7%* for 3+ year tenure. Most experts believe that India is currently in a declining interest rate regime i.e. interest rates are on the decline and are unlikely to firm up in the near future. Thus, it will be beneficial for your clients to lock in their investments at the current yields. While the NAV may fluctuate in response to changes in interest rates in the short-term, it is unlikely to create much of an impact for investors who hold till maturity.
Favourable tax treatment: BHARAT Bond ETF will be tax efficient just like other debt funds. That means, investors investing in the ETF will get benefits of indexation on long-term capital gains tax. Indexation can help your clients reduce their tax liability on the investment returns, thereby increasing the real rate of return.
Quality of instruments: The recent series of credit events in the debt market have made most advisors and investors wary of debt funds. A clear shift has been observed from credit risk funds to corporate bond funds having exposure to high quality papers, indicating that investors and advisors have taken a flight to safety.
Credit quality is a function of two factors: category of instruments and credit rating of instrument. In both the parameters, BHARAT Bond ETF scores over most debt fund categories. The ETF will focus on quality and only invest in the AAA rated papers of well established public sector companies. Consequently, the portfolio is likely to carry low credit and interest rate risk.
Liquidity: While you can buy and sell units of BHARAT Bond ETF through stock exchange platforms, the fund house also offers the Fund of Funds (FoFs) route for non-demat account holders. Bond ETFs provide liquidity in two ways, through the exchanges and directly through the AMC for larger investors in creation unit size.
Transparency: Daily disclosure of portfolio constituents and live NAV on periodic basison the www.bharatbond.in website, will be available to all investors. Live price is quoted on the exchange following every trade, allowing investors to know the fair value of the portfolio during the day.
Low cost: Most experts believe that a lower TER translates to higher fund returns. BHARAT Bond ETF will be the cheapest fund in India with a TER of just 0.0005% i.e. only Re.1 for managing Rs. 2,00,000.
Diversification: The key to mitigating risk lies in diversification. BHARAT Bond ETF – April 2023 and Bharat Bond ETF – April 2030 will have a diversified portfolio and an exposure to more than 8 Public sector companies. Single issuer exposure is capped at 15%.
Track record: The credit track record of any paper in the category indicates relative safety of the paper. All the public sector bonds in the BHARAT Bond ETFs have a good track record of obliging their commitments on time.
Is this a good investment opportunity?
For an investor looking for stable returns in the current volatile market, this is a suitable investment option. Considering the lowest expense ratio and investment in high quality papers, the BHARAT Bond ETFs can potentially generate compelling returns. Additionally, it is also relatively safer than most instruments in the category.
*Please note that the Scheme (s) are neither Capital Protection nor Guaranteed Return Product. The Scheme (s) will invest in constituents of underlying Index. The indicative yield provided is of the Index and not that of the Scheme (s). The Scheme (s) are neither Capital Protection nor guaranteed Return Product and may or may not generate return in lines with Index.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
